"I would like to make a Statement on the Pickering report that was published this morning.
"The report is the culmination of nine months of hard work by Alan Pickering and his team. I would like to thank him and also everyone who took the time and effort to submit their views—some of whom are here today.
"In his report Alan Pickering acknowledges the encouragement he received not only from my right honourable friends for Edinburgh Central and Makerfield, but also from the right honourable and honourable members opposite for Hitchin and Harpenden, Havant and Northavon.
"I believe pensions simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive governments.
"Alan's report makes 52 recommendations. Among the key ones are: a new pensions Act to consolidate all existing private pensions legislation; a new, more proactive, regulator; a better, more targeted approach for communicating with pension scheme members; more flexibility to modify schemes; allowing employers to make membership of their occupational pension scheme a condition of employment; and the ending of compulsory indexation for defined benefit pensions and compulsory survivors' benefits.
"The report, together with Ron Sandler's proposals—announced by my honourable friend the Financial Secretary on Tuesday—represents the first stage of a comprehensive review of occupational and personal pension provision in the country.
"The Government will take a radical look at the issues, together with the results of the Inland Revenue review of tax simplification, when that is completed. In the autumn we will come forward with our proposals in a Green Paper.
"This will initiate a wide-ranging consultation. It will look at private pensions policy in the round, including the opportunities open to people around retirement, and will set out the Government's proposals to enable people to build up more pension savings.
"Alan Pickering's report covers some complex issues and includes some tough choices—the inevitable dilemmas faced by all simplifiers.
"The report presents challenges to us all—to employees and their unions, to employers and commercial pension providers, to government and opposition.
"I believe we need to be guided by the following principles and objectives, grounded in a long-term approach; fairness, security in retirement, informed choice for consumers, simple and proportionate regulation, ensuring incentives are effective and well understood, promoting employment among older workers and flexibility to give individuals more choice over the pace at which they retire from the labour market. I hope that we can secure all-party agreement to these.
"The Government believe that pension provision should be based on partnership, which can secure lasting buy-in from all key players.
"We must strike the right balances between sometimes competing goals. We want the simplicity that enables people to make informed choices, without stifling product innovation and competition. We want a proportionate regulatory framework that provides sufficient security for savers while making it worthwhile for employers and commercial providers to make available good pension products. We need to ensure that we remove unnecessary barriers to employer provision and employer contributions. We need to make it easier for people to save and easier to sell savings products, as Ron Sandler's report proposed on Tuesday. We need to achieve all of that and more against the remorseless arithmetic that tells us that because we are living longer and want to maintain a good standard of living in retirement, we need to save more, work longer, or achieve a combination of both.
"We wanted Alan Pickering to present a strong challenge to the degree of regulation of private pensions. He has done that; he has made some valuable proposals for simplifying pensions legislation and reducing administrative burdens on both schemes and employers—cutting costs and simplifying choices for individuals. His recommendations also present some tough choices.
"Let us consider, for example, his recommendation that employers should have the choice to make joining a company pension a condition of employment. Some 16 per cent of people who could benefit from a company pension scheme presently choose not to do so. Compelling people to join would restrict those people's choice. But we must balance against that the beneficial effects for schemes and the overall effect of extending pension coverage.
"Alan has also made a number of specific recommendations for easements of legislation, especially to repeal Section 67 of the Pensions Act 1995. Again, that throws up a tough choice. That recommendation would mean that if employers faced funding constraints with their scheme, they could have an option to reduce future funding costs rather than to close the scheme. That would remove an absolute guarantee against the consequences of change but might well secure a better outcome for members and the future of the scheme, when set against the alternative of its closure. Alan also recommends an end to compulsory indexation of pensions and the removal of compulsory survivors' benefits as a condition of contracting out.
"On first reading, those proposals are not attractive. They go against the drive for the past 30 years to price-protect pensions and enhance survivors' benefits. But, in the light of Alan Pickering's report, we will need to consider all the consequences.
"As well as the big themes and recommendations to which I have referred, a number of more modest issues are addressed to my department and to others: for example, improving how contracting out is administered, streamlining procedures and reducing general administrative burdens; considering ways to provide better advice through the workplace; and improving information given to pension scheme members. Those recommendations have considerable merit and, subject to the response that we receive to the report, I intend to implement them.
"In conclusion, Alan Pickering's report offers clear options for simplification and makes a valuable contribution to the debate that we must have about the next stage of pension reform. We must face up to the tough choices that he sets out. In seeking to simplify in future, we must also face up to what is in many ways the harder challenge of simplifying the past, in the sense that we need to simplify the different regulations that have built up over the years. Otherwise, we will end up adding yet another layer to the existing layer cake of regulation and complexity.
"Alan Pickering's proposals are radical, ambitious and pragmatic. I urge the House, the public, employers, trade unions and pension providers—all those whose partnership is essential for effective pension reform—to give them full and constructive consideration. The Government will certainly do so. The acid tests for the Green Paper must be what will increase the level of savings for retirement and make a secure occupational pension accessible to as many people as possible."
My Lords, that concludes the Statement.
My Lords, first, I thank the noble Baroness for repeating the Statement made in another place and declare an interest as the chairman of an occupational pension scheme. We certainly welcome the report and congratulate Mr Pickering—as I prefer to refer to him, rather than in the informal manner used by the Minister. Of course, Mr Pickering and his team benefited from widespread consultation, including that with my honourable friend Mr Willetts in another place.
Having said that, the terms of reference of the report were restrictive. For that reason, it does not convey the present sense of crisis in pension provision. Neither does it analyse the causes of that crisis, other than in a passing reference to the problems of FRS 17, which have, I hope, been at least deferred, and the minimum funding requirement.
About five years go, the Government rightly paid tribute to the tremendous contribution made by company schemes, calling them the jewel in the crown, and so on. But, since then, they have suffered one blow after another—most notoriously, of course, the Chancellor of the Exchequer's attack on them in his first Budget. How much worse off does the Minister think that pension schemes now are as a result of that? Does that not now amount to more than £35 billion?
Nor does the report refer to other specific examples, such as the deterrent effect that the minimum income guarantee related to earnings may have on people who may otherwise contribute to pensions. That is especially true of defined contribution schemes. The noble Baronesses shakes her head. What size of pension fund would be necessary to lift people above the level of benefit provided by the minimum income guarantee?
As the report makes clear, it must be considered against the Sandler report, which we discussed last Tuesday. Sandler was enthusiastic about stakeholder products, which we must consider against the background of the stakeholder pension. That has been disappointing in terms of reaching its target audience of about 5 million people. As a result of how it has operated, only a small proportion of those whom the Government hoped to help—some estimates are as low as 2 per cent—may have benefited.
In that context, I am concerned by the expression used by the Financial Secretary to the Treasury when she referred to such products as "a safe haven". Would the noble Baroness refer to the stakeholder pension as a safe haven? In my view, such a statement is akin to mis-selling. If someone invested, say, £1,000 in a stakeholder pension, is that likely to be worth more or less now?
I warmly welcome some parts of the report. In a paragraph to which the Statement did not refer, but which is none the less important, it considers whether trustees should have more flexibility in giving advice to their beneficiaries. That is a real problem. Pickering envisages that most in the context of whether they could recommend a particular pension. But trustees are also inhibited by the current legislation from expressing a view on, for example, what someone who has had an additional voluntary contribution policy with Equitable Life for the past couple of years or so should do about that. Trustees may well know more about that than the independent financial advisers to whom they otherwise necessarily must refer their beneficiaries.
That brings us to the question of compulsory membership. It is estimated that about 16 per cent of employees do not join company schemes. That is a question of communication, but it is extraordinary that not everyone who is entitled to join even the best scheme does so. That is a cause for concern, although whether compulsion is the right answer is debatable.
The report also rightly draws especial attention to the problems of regulation. Basically, it distinguishes between the administrative burden placed on company schemes—which is great and has steadily increased in recent years—and what Pickering refers to as prescription on design, that is to say, on what should be the terms of the pension scheme. He draws particular attention to the effect on defined benefit schemes and questions whether they should be required to be indexed and to include survivor benefits. Those are difficult areas and will require careful consideration.
There is a slight counsel of despair in Pickering's observation that such provisions may have to be abandoned because of the difficulties that companies are facing in the present climate. The report refers also to the reduction in the different types of pension, where a balance must be struck. There are advantages in simplification but if the number of schemes is reduced too much, consumer choice will be limited.
In recent months we have seen something almost approaching panic, with companies closing defined benefit schemes and moving towards defined contribution schemes—the effect of the factors that I have mentioned and of a decline in the stock market. If that trend continues unabated, there may be little left of the company pension scheme that has been admired for such a long time.
I urge the Government to react quickly to the report. The Statement promises a Green Paper in the autumn, but one was published shortly after the Government came to office. It aimed at reversing the proportion of private to public schemes to 60 per cent and 40 per cent. Since then, the proportion has moved steadily in the wrong direction. It is important that the Government's response should not be unduly delayed. The consultation with Mr. Pickering has been extremely helpful, but if the present situation is not to deteriorate further, it will be necessary to set a tight timetable for assessing the proposals made in the report—which I say again is extremely helpful.
My Lords, I thank the noble Baroness the Minister for repeating the Statement and welcome this extremely interesting and thought-provoking report.
It is easy to view the report in a particular way against the current crisis, when many of its proposals are for the longer term. It is incumbent upon the House to look at the design and intention behind some of Mr. Pickering's proposals.
There is much in the report for careful and thorough consideration, such as the proposals for survivor benefits. The report describes the changing nature of relationships and employment. From earlier debates on pension policy, it is clear that a crisis exists in relation to pensions for women. For the foreseeable future, women will earn much less than their male counterparts—so their pension purchasing power will inevitably be lower. What efforts will be made in the consultations to focus on women's pension problems?
The report's second most important proposal concerns indexation. Mr. Pickering observes that a pension is a pension is a pension. However, in many cases a pension scheme promise is not worth the paper that it is written on. The settlement as between private and state pension provision is falling apart. It is difficult to see how some of the indexation proposals can be taken on board to achieve the report's stated objective of increasing confidence in occupational pensions and savings.
Some aspects that are not part of the report, such as an analysis of the healthcare costs of retirement, must be part of the Green Paper. I hope that that paper will not make the mistake of confusing mortality with morbidity. The prospect of a large number of older people living much longer at considerably higher healthcare costs must be taken into consideration when devising a long-term pensions policy.
My one strong criticism of the report is that it greatly overestimates the power of employees individually or collectively to challenge pensions provision decisions made by their employers. In recent months, we have seen what it takes for even informed bodies of workers to mount a legal challenge. The report's proposals rest on extremely well-equipped and powerful employees. I am not sure that that situation will exist in future.
The report offers the potential for a wholly new contract for occupational pensions. Equally, because the proposals are tentative, there is the potential for a complete disaster or dog's dinner. What will the consultation document contain about the timing of implementation—on which many of the proposals and transitional arrangements rest?
My Lords, I too find it difficult to talk about Alan. I thank the noble Lord, Lord Higgins, and the noble Baroness, Lady Barker, for their constructive approach. If we are to find ways through difficult situations with staying power, there must be consent. Informed criticism is a different aspect. I much welcome the consensual tone evident so far and hope that it will be perpetuated.
The noble Lord asked about the cost of ACT to pension schemes. About £5 billion a year came back to the Exchequer as a result of no longer having the tax defamation that was ACT—of which about £3.5 billion fell directly on pension schemes. British companies, unlike American companies, were paying as a result of a tax distortion too much in dividends while not making enough of the investment on which long-term jobs and the pensions of future generations depend. We are delighted to see that, since that change in the tax structure, investment in companies has increased, which means that it is having the effect that we hoped for.
Secondly, the noble Lord asked about pension credit. He asked what size of fund would be needed to raise somebody above MIG. In fact, it will not work like that. Pension credit has addressed that issue, and the noble Lord's question is a pre-pension credit question. For example, for someone who has a full state retirement pension and an occupational pension of £100 a week, that occupational pension would not raise them above MIG. We can work out what the pension pot would have to be for that £100. Under pension credit, that pensioner would keep £60 of the £100, and the figure would go up to something like £113 a week, as opposed to the current figure of £100 a week. Therefore, the question will not be relevant once the pension credit system is in place next year.
The third point that the noble Lord raised was about stakeholders. I simply disagree with him about the success or otherwise of stakeholders. So far, something like 815,000 people have joined a stakeholder scheme. The vast majority of those people are the people of working age whom we hoped to help. Because those products are low cost, transparent trackers of the index, they are safer, cheaper and more readily available than the products on the market hitherto.
The noble Lord also raised a query about the Government's response to the move from defined benefit to defined contribution schemes. As I said, they are safer, they are low-cost, and they are transparent trackers. The safest product of all is one that does not relate to any volatility on the market and is simply guaranteed by the taxpayer—the retirement pension and similar savings vehicles. Among funded occupational schemes, the stakeholder product, given its low cost, its transparency and the fact that it tracks the index, is likely to be safer and more reliable than others currently available to people of modest income.
The noble Lord's last major point was about the DB-to-DC schemes. He will know that, with the move from DB to DC schemes, there is a transfer of risk. The noble Baroness, Lady Barker, said that a pension promise was not a pension promise when it was not delivered. For many years, employers have enjoyed a pension contributions holiday and have not had to meet the pension promise behind the defined benefit scheme. Even last year, half of all companies had either suspended or reduced pension contributions. The moment that employers are required to pay the full sum implied in the pension promise, some of them, encouraged by financial directors, vote with their feet and move into defined contribution schemes and use that as an opportunity to reduce their pension commitment from an average of 12 to 15 per cent to 5 to 7 per cent.
The key thing is whether not only employees but employers pay at the levels that we need to establish decent retirement incomes in old age. We will consider whether Pickering has the right solution. But there is no dispute about the fact that what matters is that, over time, if the same level of contribution is kept up and if we make the same assumptions about the stock market, a DC scheme and a DB scheme should not produce strikingly different outcomes. The trouble is that employers are using the opportunity to cut contributions, which means that outcomes will be very different.
The noble Baroness, Lady Barker, pressed me on two major points, the first of which was timing. We will have a consultation document, and it will probably—it is a matter for others, not for me—lead to legislation. Were that to be the case and should there be consensus, we would be talking about the year after for consultation with the industry, and we would have to give two years' notice and so on. The noble Baroness is right about that. Changing pensions structures takes time because people invest in them for 40 years or so. It is right that we should get a consensus for change and, as far as possible, consider all the aspects properly, rather than going for a hasty solution.
The noble Baroness also asked about survivors' benefits and whether we were considering the situation properly. I am happy to repeat the undertaking that the Secretary of State gave earlier today. The consultative document will consider all implications for the gender balance properly and thoroughly. Obviously, Pickering considers the three balances: that between employers and employees; that between pension providers and consumers; and that between employees with a pension and those without. However, the Government must take two other balances into consideration. One is the gender balance and the other is the intergenerational contract between current pensioners, who may be open to Section 67 changes, and those who are deferred pensioners or current employees. That is part of the wider context, wider than the issues that Pickering addressed.
The noble Baroness will know that, according to the Association of British Insurers statistics, something like 80 per cent of those buying a money purchase pot go for flat-rate single life products because they prefer to have the money up front. That is a consideration because, if one is not careful, one simply pushes the problem of poverty further into old age. That is particularly the case for women. That is why we must consider whether we can encourage women not only to come into the labour market, as we do, but to build up a proper, independent pension provision, including pension sharing on divorce for those whose relationship ends, something of which the noble Baroness, Lady Seear, was a prominent advocate. There is also the question of the roles of the state second pension and the stakeholder scheme.
The Government have produced ways to help women to compensate for the fact that they have lower earnings and earn for a shorter time, although they live longer. That produces a complex of pension issues that are sharper than those experienced by men.
The noble Lord, Lord Higgins, teased us about the previous Green Paper on pension reform, published, I think, in December 1998. He asked what we had done. In the foreword, the Prime Minister said that we needed an assurance of a decent income through the new minimum income guarantee and that that income should rise in line with earnings. We have done that; it will become the pension credit. The Prime Minister also called for dramatically better pension provision for those on low incomes and those unable to work because they are carers or are disabled. We have delivered that; it is called the state second pension. The third thing that he called for was a better deal for middle and higher income earners through low-cost and flexible personal stakeholder pensions. We have delivered that; it is called the stakeholder system.
The previous Green Paper led to three pieces of legislation. I hope that the consultative document, which may lead to legislation, will not lead to quite so much.
My Lords, I thank my noble friend for making the Statement. I welcome the Pickering report. It is interesting, and it floats many ideas that need serious consideration. I declare my interest. For many years, I was a member of the Occupational Pensions Board, the precursor to the Occupational Pensions Regulatory Authority. I am a current member of the council of OPAS, the Pensions Advisory Service.
The report, I am glad to say, refers to member-nominated trustees. Trustees play an important role in representing members' interests in schemes. It is important that trustees should have proper training and support to carry out those functions. I was also interested by—and I support—the report's recommendation that it should be possible for firms to make it a condition of employment that people belong to the occupational scheme. On previous occasions on which we discussed pensions, I put down amendments to that effect but never managed to get them carried. It is an important matter. A situation in which employees are bound by contract to contribute to a scheme gives us further reason for having a good regulatory mechanism to ensure that the schemes in which they invest their earnings and in which the employer also invests should be safe.
One of the problems is that recent scandals have caused the public to lose faith, to some extent, in pension provision. That is a great pity. Occupational pensions are one of the great successes of the past century. Because of occupational pension provision, many pensioners now retire on higher incomes than they would have had had pension provision not existed.
I disagree with Alan Pickering on the issue of indexation. In my experience, schemes index, if at all, to a maximum of five per cent per annum anyway. It is a fairly moderate system of indexation, which does not take account of the possibility of a higher rate of inflation. If people are to have faith in their pension provision, they need to have faith in the fact that it will keep pace with rising costs in the future.
Another interesting recommendation made by Pickering is that there should be multi-employer schemes. It is worth considering the case for small employers to group together, perhaps on a geographical basis, to provide schemes for employees in their areas. It is important that we have an opportunity for full discussion of those issues.
The noble Baroness, Lady Barker, raised two very important issues; namely, provision for women and interaction with the state scheme. I welcome the Minister's assurance that there will be a Green Paper and an opportunity for full consultation and further discussion.
My Lords, my noble friend dissented on two propositions—that affecting survivors' benefits and that eradicating RPI from occupational pensions. I remind my noble friend that, under Pickering, those would be optional proposals that could be part of an employer's scheme. It is Pickering's belief that what encourages employers to leave DB schemes and transfer to DC schemes is the fact that the better the scheme, the more regulated and onerous it may appear. Therefore, if one strips it down to a bare bones scheme and makes it cheaper, there will be a greater willingness by employers to both support and access it. The problem is that that concept is counterfactual; one does not know whether or not it is true. That is precisely why we need the consultation for which my noble friend has called.
My Lords, I thought I had answered that question fairly fully when I responded to the noble Lord, Lord Higgins. The noble Lord may disagree with my answer, but I certainly addressed the issue. I said that the reason for abolishing ACT was that, as it stood, it deformed the pattern of investment in companies through tax privileges, compared with the United States; and your Lordships can see evidence of that.
My second point—pressure of time did not permit me to make it initially—is that the Myners report, as the noble Lord will know, said that what mattered was not the tax protection of ACT, but the asset allocation decision by good fund managers, which he reckoned was 10 times more important.
My Lords, as Director of the Personal Investment Authority, I spent more years than I care to remember mired in the muck trying to sort out the pension mis-selling scandal. I therefore welcome the fact that, particularly for occupational pensions, some simplification is at last being advocated in this report.
Will the Minister agree that so long as pension providers are allowed to sell on the back of a lie, the lie being that in real terms investments can grow at six or eight per cent per annum, whereas four or even two per cent would be nearer the realistic mark, we shall have intermittent crises and problems in the field of pensions and will tempt people to under-provide for their pensions?
My Lords, my noble friend is absolutely right that we should all take more seriously, as I am sure we will, the health warning that investments can go down as well as up. All the evidence that I have looked at from 1955—the same is true of all European OECD countries—is that over time, provided dividends and such like have been reinvested, equities have performed much better than either cash or government bonds. However, there is some volatility, but if one starts a pension fund at a sufficiently young age, as one should, that volatility should even itself out over 40 years.
My noble friend is right. No one can expect to revert to the years of six or eight per cent real return. We need to have much more realistic expectations, not only about what the Stock Market will return but, given longevity, about how much we need to save for the time we hope to spend in retirement. It is no longer the case that two people can expect to spend 30 to 40 years in retirement on the basis of one person working for 35 years.
My Lords, I welcome this report on pensions, as I would any report that tends to provide some answers to the increasing problems in the field of pensions.
One of the issues of great importance concerns people who have an opportunity to join occupational pensions but do not do so. It is estimated that 16 per cent do not, which means that 84 per cent, the vast majority, do. However, recognising that 84 per cent represents millions of people, 16 per cent represents hundreds of thousands of people. If one considers the beneficiaries of an occupational pension, such as husbands, wives and children, one runs into a large number of people.
When I was a trade union officer, I received all kinds of answers from people who were informed that the joining of a pension scheme was a condition of their employment. Unlike the noble Lord, Lord Higgins, they gave answers, such as, "I shall not live that long" or "I want my money now, I do not want it in the future"—very short-term approaches, which they could not exercise because it was a condition of their employment. I do not envisage any difficulty in reintroducing that kind of provision. I hope the Government will embrace the recommendation that an employer should be able to insist on an occupational pension scheme as a condition of employment. In that way, the fund will grow.
The Minister referred to pension holidays. Pension holidays have taken place. However, as I recall—I was involved in pensions in my own trade union—in those days many employers were driven to introduce pension holidays after securing major improvements to their funds because otherwise there was a threat of taxation, which the previous administration introduced.
My noble friend has expressed views on the choice of employers to insist that an employee should join their company schemes. I recognise and respect that view, which is shared by many of our colleagues. That is exactly the kind of issue on which we shall need to seek consensus when we publish the consultation document.
My Lords, it is difficult to consider pensions in the round without referring to the very extensive pensions in the public service—the Civil Service, the Armed Forces, the health service, teachers, local government, the police and other groups, which make up a very significant proportion of our country's employed people.
Public service pension schemes have tended mainly to be index-linked and to have had survivor benefits. I imagine that at least some of those who are looking forward to receiving public service pensions may be worried by press reports of this report, indicating that there are now questions marks over whether index-linking and survivor benefits will be continued. In those circumstances, will the Minister give some indication of the Government's view of the size of that matter? Such pension schemes, of which there is a wide variety in the public service, are often not funded. It is therefore necessary to take them fully into account, as I hope the proposed Green Paper will.
My Lords, I should like to respond by making one or two brief points. First, this is an independent report to the Government; it is not the Government's report. A whole range of proposals have been put forward—some 52 in all. We agree with some of them because they are self-evidently virtuous while others are more provocative and we shall want to seek consent for them. The noble Lord, Lord Hayhoe, will understand therefore that we are not in a position to endorse every proposal.
Secondly, as the noble Lord, Lord Higgins, pointed out, we have to look at this in the context of the sound recommendations of Myners and the forthcoming autumn review. We need to contextualise this matter.
I turn now to the points raised with regard to public service pensions. I should like to say first that no existing pensioner could be affected by anything in Pickering. The report proposes an option for employers to make available to their employees. Thus it would be for the trustees, employers and employees of public sector firms to decide whether that is the way they wish to go and to trade, if you like, value asset in terms of the benefits of the scheme with cost of access and entry. Thus different schemes may reach different decisions. For example, I understand that the terms and conditions of the Civil Service scheme may be very different from those pertaining in my former university scheme. That is a decision made by the participants.
However, given the suggestions made in the Pickering report, it is not expected that the Government would require firms to strip advantages such as index linking and survivors' benefits out of their schemes against their current will. That has not been suggested in the report and nothing said today by my right honourable friend would suggest that either.
My Lords, perhaps I may invite the Minister briefly to decontextualise for a moment and to respond to one question. Rightly she has deplored the dangerous trend whereby companies have been cutting the employers' contribution at the same time as they are moving away from defined benefit contribution schemes. What, if anything, will the Government do about this?
My Lords, I cannot answer the question because it falls into the same extremely difficult category as that of making pensions compulsory. If one followed the noble Lord's thinking, one would need, first, to make all pensions compulsory on employers and, secondly, to force all employees to join such compulsory schemes. Thirdly, the schemes would require a minimum contribution from employees and, fourthly, they would require a substantial minimum contribution from employers. Finally, agreement would have to be reached on difficult issues such as index-linking, survivors' benefits and so forth.
If the noble Lord is seeking to press me on what we are going to do about all five issues, then I cannot tell him. Those are not government decisions. What must be done is to build a consensus with regard to what people are willing to trade for what. Are they willing to pay for higher benefits? Are they willing to work longer for higher benefits? Are they willing to seek a second income in the household to buy those benefits? Finally, what securities and compulsions would they wish to see underpinning such schemes? As result, now is not the right time for me to ad lib in regard to some of the most difficult questions on which no government have been able effectively to reach a consensus over the past quarter of a century.
My Lords, I thank my noble friend on the Front Bench for repeating the Statement. The question of pensions is turning into a nightmare. I should declare an interest as chairman of Caparo Group Ltd, which recently has generated a certain amount of news in the press.
I welcome the Pickering report, although I have not yet had a chance to look at it in detail. It is time to clarify matters so that everyone understands the outcomes of their pension schemes rather than having different results. Indeed, it is now becoming more difficult to run a company's pension scheme than it is to run the business itself. I ask the Government to look at what they can do to simplify the system as soon as possible.
My Lords, clarity and simplicity were precisely the terms of reference governing the Pickering report. My right honourable friend has already made it clear that the Government are extremely supportive of all moves towards greater simplicity.
My Lords, is the noble Baroness aware that the Government's arguments in favour of taxation of dividends on pension funds are now running a little thin? They must have been thought up by a wizard in the Treasury who knew very little about how management works. Is there any hard evidence to suggest that investment, in particular in manufacturing industry, has increased as a result of the Government's actions?
My Lords, I cannot talk specifically about the manufacturing sector because the noble Lord will know as well as I do that different sectors grow or do not grow at different rates, thus influencing issues surrounding the European currency and so forth. Thus I am not able to give him any detailed information with regard to the manufacturing industry.
However, I can tell him that I have received assurances that, as a result of the changes that we have introduced, investment in industry has increased. Perhaps I may repeat what I said earlier. Obviously pensioners would like extra money through tax privileges. However, from our point of view it is equally important that the bedrock of pensions, reflected by the health of the companies that fund them, is protected. That is best secured by ensuring that companies continue to reinvest.
I should like to make a further point. The tone of noble Lords opposite would suggest that there is no government support for private sector pensions. At present I believe that we are spending something in the order of £45 billion on the range of state sector pensions; we are supplying £11 billion in NICs contracted-out rebates that help to fund occupational pensions. In addition, a sum in the order of £14 billion of taxpayers' money goes into tax reliefs, rebates and the like, sustaining and supporting the occupational pension industry.
I do not think that the noble Lord, Lord Prior, should regard the occupational pension industry as under-supported by the current fiscal regime, particularly given that in this country we now have one of the lowest corporation tax levels on record.
My Lords, before going on to make one or two remarks, perhaps I may ask my noble friend on the Front Bench to reconsider the response she made just now in relation to public service pensions. If I recall correctly, she said that there was nothing in the Pickering report that could affect current members of company pension schemes. I hope that my noble friend Lord Paul is not listening to this, but it seems that this report may give a number of employers many ideas. We may well see some acceleration of changes in those pension schemes currently in payment.
I turn now to the brief points that I wish to put to my noble friend. First, the Statement refers to striking a balance between "innovation, competition and simplicity". As every Chancellor of the Exchequer proves with every Budget, innovation and competition add to greater complexity. We must ensure that, so far as we are able, we move forward with simple and worthwhile schemes.
Perhaps I may presume to offer a little advice. I should imagine that all noble Lords who have spoken in our debate are concerned about the problems with regard to survivors' benefits and indexing. Were I to give any advice at all, it would be to say quickly that the Government should not be minded to accept those recommendations. The Government will receive a far more positive response in that regard, certainly from the trades unions and the TUC, if they know that those recommendations have been put out of the way.
Lastly, it is my opinion that pension provision will be one of the big issues of the next general election. There is a pensions crisis. Unusually, it is not related solely to the vast bulk of working people. I should declare an interest here, but those looking forward to an "equitable life" are finding that it will be less so. There is a real problem here. Certainly we are going to see long-term problems with regard to the concept of the stakeholder pension. To that end, would my noble friend on the Front Bench consider approaching the Trades Union Congress? Good examples can be cited from the past, in particular in Israel with Histradut; that is, to have a scheme that is effectively endorsed and run by the trade union movement as a whole, with a view to providing the kind of pension systems which are badly needed.
My Lords, I look forward to reading my noble friend's contribution to the consultative document. No doubt the trade union movement will be active in promoting its views through that medium.
My noble friend knows well that I shall not give any undertakings with regard to the Government's response to one or two of the proposals. However, I listened with care to his points with regard to pension schemes and pensioners. I said earlier that the Pickering report made it clear that it was not referring to existing pensioners. However, that is not to say that Pickering does not believe that Section 67 of the Pensions Act 1995 may need to be amended to allow for alterations to schemes for the benefit of schemes as a whole. That is one of the proposals being put to us. We will consider it and see whether the problem is the size that Pickering believes it to be.
My noble friend Lord Christopher said there was a pensions crisis. There is a problem of longevity. Every decade people live two years longer. There is the medium-term problem of the stock market. I suspect that if it were trading at 6,000 to 6,500 there would not be some of today's concerns. There is a more immediate problem of lack of confidence in the pension industry built up through years of mis-selling, together with what happened at Equitable Life and the like. We are hoping that that combination of simplification and regulation will allow us, with Myners, in co-operation with the industry to develop a range of products that people will see as safe and secure vehicles for protection against poverty in their old age. The state is a partner; employers are a partner; and the industry is a partner.
I hope that many of your Lordships who have spoken in this interesting debate will contribute to the consultative process. I do not doubt that we shall return to the issues.